Individual investors have always had a soft spot for cheap stocks to buy, but get scared away because traditional Wall Street dogma would have you believe that these stocks are too speculative and dangerous for most individuals.
But cheap stocks can be among the best stocks to buy because they bring several advantages to a portfolio.
For starters, if you're buying a quality low-priced stock, you're getting high value for a discount. That's an obvious benefit.
There is also a not-so-obvious benefit…
Large institutional investors such as pension funds and some mutual funds are prohibited from buying stocks that trade below $5. As stocks slip below that price, analysts often stop covering the company due to a lack of interest from larger investors.
The lack of analyst coverage gives you a chance to buy before the stock comes to the attention of large institutional buyers. With cheap stocks, investors are less likely to be trading against the high frequency and short-term traders who need higher-priced, more liquid stocks to conduct their routine business.
Another note about cheap stocks: Hunting for cheap stocks to buy will often take investors to foreign companies' stocks trading in the United States.
Some investors avoid these shares – but you shouldn't. There are very profitable and affordable opportunities in this space. They can also offer a nice balance in your portfolio to shares of U.S. companies that haven't tapped into overseas economic growth.
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Using the widely available web-based stock screeners, an investor can quickly compile a list of international low-priced stocks that trade at discounted valuations and have outstanding long-term potential.
I put together a couple cheap stocks to buy now that are both under $5, are benefiting from economic recovery, and have more than 4% dividend yield…
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.